Windows path handling changed between versions

I recently upgraded from Windows Git 1.6.2 to 2.5.0 and found myself
unable to rebase. Turns out paths didn't used to be case-sensitive and
now they are, causing a number of operations to halt. A repo created
by pointing at the directory
    c:\core\guidewire\Dev\2.4
would (I suppose) technically have been invalid the whole time because
Windows reports the current path as
    C:\core\guidewire\Dev\2.4
, but msys Git 1.6.2 evidently made a case-insensitive path comparison
so the discrepancy was suppressed.

The proximate cause of errors was
    git rev-parse --is-inside-work-tree
which would output 'false' even inside the working tree.
"--is-inside-git-dir" also printed 'false' in directories where it
should have said 'true'. I actually missed the problem in plain sight
at first, because I created a new repo (in which everything worked as
expected), and then did a directory diff... the worktree paths were
different but I only noticed the names, not the case difference in the
drive letter. More details in this SO question:
http://stackoverflow.com/q/32280644/2835086

I was able to repair my existing repos by changing the 'worktree' value in gitconfig - s/c/C/ did the trick - but the whole thing was a surprise.

Is this a bug in the current version? Windows doesn't distinguish on case, so maybe applications shouldn't either. Was this a bug in the prior version? Maybe creating a repo with a worktree path that doesn't match the file system should have been an error from the very beginning. Was this user error? Maybe I did something wrong and should have known better, but got away with it for a while.

Any feedback welcome, -gws